Warning signs of potential real estate fraud
It may be as simple as falsifying information on a mortgage application.
Or it may be as complex as acquiring property and then artificially increasing its value through a series of sales and re-sales using a network of accomplices.
Regardless, mortgage fraud is a criminal offence, and it continues to be a serious issue for the real estate industry. The Real Estate Council of Ontario (RECO) conducted 23 investigations related to allegations of fraud over the past two years.
Two types of real estate fraud exist: mortgage fraud and title fraud. Mortgage fraud can affect anyone involved in a real estate transaction -- sometimes unbeknownst to the parties involved. It most often hurts financial institutions that lend money. Conversely, title fraud affects individual homeowners. This type of fraud involves using stolen identities or forged documents to transfer a registered owner’s title to another person, who then obtains a mortgage on the property. Once the funds are advanced, that person disappears.
It is therefore incumbent upon registrants to be wary of typical fraud practices and report suspicious transactions to RECO. Under the Real Estate and Business Brokers Act, 2002, RECO has the power to investigate allegations of fraud, and it reports fraudulent activities to the police.
To protect your clients, advise home buyers to talk to their lawyers about title insurance. Defrauded homeowners with title insurance can recover title or be compensated for their losses, or both.
To protect yourself as a REALTOR®, here are some tips: Collect and verify personal information from clients; track the source of funds received during a transaction; ask for proof of identification from all buyers and sellers in a transaction (including corporate clients); keep documentation on all funds received for five years. Finally, get to know your client and be alert for signs of fraud.
Real estate practitioners must verify facts. Some situations may arouse suspicion and warrant further research. The following “red flags” have been noted by RECO as scenarios that may reveal the need for further investigation:
The seller wants to meet at a location other than the property he/she plans to sell; insists the property be listed at a price over any reasonable market value; has just purchased the property recently and wants it listed again at a significantly increased value; is from another area but wants a property listed locally; finds his own buyer.
The elective course, Principles of Mortgage Financing, offered by the OREA Real Estate College, explores these issues in more detail. It also identifies warning signs to salespeople. They include:
- Inconsistent personal details
- The buyer has a significant down payment but no tangible assets
- The buyer does not wish to see the property personally
- The client can only be contacted by cell phone
- The same lawyer acts for both buyer and seller in a transaction
- The same salesperson is repeatedly involved with multiple representation in transactions involving one particular buyer
- The same salesperson does the majority of business with few clients and refers buyers/sellers to the same lawyer, appraiser, etc.
- The listing information does not align with the facts
- The client asks that the deposit be held by a party other than the listing brokerage for no apparent reason
- Several transactions involving the same property occur within a short time frame
- The listing or sale price history doesn’t make sense based on market trends
For more information and other resources on real estate fraud, visit the following websites: www.reco.on.ca and click on Publications and Resources and then on Mortgage Fraud; Also see the Government of Ontario website at www.ontario.ca, click on Home and Community and then on Land Registration and look in the left-hand column for Real Estate Fraud. See also the February 2010 Edge article on “Identifying fraud: Use caution, common sense.”
Source: OREA Edge Newsletter
CENTURY 21 Miller Real Estate Ltd.
Brokerage Independently Owned and Operated
467 Speers Road,
Oakville, ON L6K 3S4